Making Homeownership More Accessible and Sustainable

When President Obama took office, our housing market was in free-fall, and rising unemployment and plunging house prices posed numerous challenges for families and the broader economy.  The President took immediate action to stabilize the housing market and protect the middle class.  These steps helped millions of middle class families stay in their homes, save money on their mortgages, and turn their communities around.

Today, the housing market is on firmer footing. Rising home values have brought millions of families out from being underwater, new foreclosures are at the lowest levels since 2006, and home sales have substantially increased.  The President’s push for tough enforcement against past abuses and strong new consumer protections have helped curb irresponsible lending and have given responsible Americans more confidence and security in their most substantial investment. And the Consumer Financial Protection Bureau has pioneered new, streamlined mortgage forms to make simpler and easier for families to buy a house.

Still, there’s more work to do: too many creditworthy families who can afford—and want to purchase—a home are shut out of homeownership opportunities due to today’s tight lending market.

That is why today, the President announced a major new step that his Administration is taking to make mortgages more affordable and accessible for creditworthy families. The Federal Housing Administration (FHA) will reduce annual mortgage insurance premiums by 0.5 percentage point from 1.35 percent to 0.85 percent. For the typical first-time homebuyer, this reduction will translate into a $900 reduction in their annual mortgage payment. Existing homeowners who refinance into an FHA mortgage will see similar reductions to their mortgage payments as well. In total, this action will help millions of families save billions of dollars in mortgage payments in the coming years, helping to support the housing market recovery. The new premium level is fully consistent with the FHA’s commitment to continue strengthening its financial health through growing reserves. At the same time, full documentation and continued strong underwriting means lending will remain prudent and sustainable – benefitting both homeowners and FHA.

This step is part of the President’s broader effort to expand responsible lending to creditworthy borrowers and increase access to sustainable rental housing for families not ready or wanting to buy a home. In the coming months the Administration will be taking additional steps to cut red tape and clarify lending standards to build on the measures announced today. And the Administration will continue to urge bipartisan progress in Congress to pass comprehensive housing finance reform legislation that will secure a stable and resilient housing finance system – one that will ensure broad access to mortgages at affordable rates and better serve future generations. 

Making Homeownership More Accessible and Sustainable

Ø  Reduce FHA Premiums to Help Make Mortgages More Affordable:

Ø  FHA is reducing annual FHA mortgage insurance premiums by 0.5 percentage point from 1.35 percent to 0.85 percent, an average savings of $900 annually for new borrowers.

Ø  Lowered premiums will help more than 800,000 homeowners save on their monthly mortgage costs and enable up to 250,000 new homebuyers to purchase a home.

Ø  These steps will help support home sales, lower housing expenses for affected households, and help bring more balance to the housing market.

Ø  Build on Successful Policies that Have Helped Lead the Housing Recovery:

Ø  Today’s action builds on the successful steps the Administration started taking immediately after the President took office – actions that helped create today’s strong recovery in housing.

Ø  The Administration’s mortgage modifications, private modifications, and other federal mortgage assistance have helped over 8 million borrowers, more than twice the number of foreclosure completions; more than 3 million borrowers have saved money through refinancing; and the Administration has invested billions in neighborhood stabilization and anti-blight initiatives.

Ø  Today, the housing market continues to strengthen: house prices are up nearly 30 percent from crisis lows; 10 million fewer borrowers are underwater with homes worth less than their mortgages; and new foreclosures are at a 9-year low.

Ø  The President continues to strongly support long-term housing finance reform through legislation that requires private capital to take the risks and rewards in mortgage lending while preserving broad and affordable access for all creditworthy families.

Ø  Preserve Sound Underwriting and Strong Consumer Protections:

Ø  FHA will continue to preserve sound underwriting standards with full documentation requirements and a prudent evaluation of a borrower’s ability to sustain payments.

Ø  CFPB and others will continue to monitor and enforce important consumer protections that helped eliminate the worst lending practices of the past so that mortgages are underwritten in a more sustainable manner. 

Ø  Continue to Strengthen FHA’s Financial Health:

Ø  Even after today’s reduction, FHA annual mortgage insurance premiums will remain at 0.85 percent, higher than historic norms.

Ø  Even with this reduction, FHA is projected to add $7 to $10 billion annually in new capital reserves – in part due to improved risk management and credit policies – and maintain a positive financial trajectory for the Mutual Mortgage Insurance (MMI) Fund.

Reduce FHA Premiums to Help Make Mortgages More Affordable

·         FHA is reducing annual FHA mortgage insurance premiums by 0.5 percentage points from 1.35 percent to 0.85 percent. This reduction in premiums will produce an average savings of $900 annually for all new FHA borrowers.

·         More than 800,000 FHA borrowers are projected to take advantage of these lower rates in the first year, saving millions of dollars in total.

·         Lowered premiums will create opportunities for 250,000 new homeowners to purchase a home over the next three years. In recent years, many aspiring homeowners have been waiting on the sidelines before buying a new home. By making mortgages more affordable and helping create further confidence among those wanting to buy a home, the FHA premium reduction will help hundreds of thousands of additional families own a home for the first time.

·         The new home buying activity and benefits of the cost savings to borrowers will help further strengthen the housing market. An increase in first-time homebuyers and more affordable mortgages will help spur more residential construction and help create new jobs in the housing sector.

Preserve Sound Underwriting and Strong Consumer Protections

·         FHA will preserve sound underwriting standards with full documentation requirements and a prudent evaluation of a borrower’s ability to sustain payments. Today’s lending standards are not only tighter than the pre-crisis period, but also much tighter than historical norms. Since 2009 FHA has instituted a credit score floor and required manual underwriting for higher-risk borrowers. Continued access will only be extended to borrowers who can sustain their payments on a well-underwritten and fully documented mortgage.

·         The Consumer Financial Protection Bureau (CFPB) and others continue to develop and implement important consumer protections that helped eliminate the worst lending practices of the past so that mortgages are underwritten in a more sustainable manner.  These improvements came because the President fought for and signed into law the strongest consumer protections in history.  The Wall Street Reform and Consumer Protection Act tasked the CFPB with protecting families making financial decisions. The first-ever independent consumer watchdog, the CFPB protects middle class families by making it safer and simpler to apply for a mortgage and know that it is sustainable.  To this end, the CFPB has done the following:

o   Required lenders to evaluate a borrower’s ability to repay their loan, so homeownership can once again help families build long-term wealth.

o   Prohibited lenders from paying bonuses for putting borrowers into more expensive loans.

o   Created rules to ensure borrowers understand their loans and receive timely and useful information about their monthly payments and any upcoming changes to their loan.

o   Set additional protections for those borrowers who are offered riskier, higher-cost mortgages.

o   Established a consumer help hotline that has already addressed more than [175,000] complaints and helps keep CFPB informed of new problems facing families so it can better address new challenges.

o   Required servicers to make good faith efforts to contact delinquent borrowers and inform them of their options to avoid foreclosure as well as ensure certain other borrower protections are followed. 

Continue to Strengthen FHA’s Financial Health

·         Even after today’s reduction, FHA annual mortgage insurance premiums will be at 0.85 percent, above the historic norms of roughly 0.55 percent. Upfront premiums and the life-of-loan MIP structure will remain unchanged. This robust premium structure will more than cover the related estimated credit losses posed to the insurance fund from newly originated loans, continuing to strengthen the Fund and protect taxpayers.

·         This reduction will continue to allow FHA to maintain a positive financial trajectory for the Mutual Mortgage Insurance (MMI) Fund.FHA is projected to add $7-$10 billion annually in new capital reserves each year, as a result of improved risk management and a stronger housing market.

·         FHA’s Office of Risk Management will continue to monitor and ensure effective credit risk management and loss mitigation. The Office will highlight changes that would strengthen credit policies and reduce losses on claims, ensuring that financial reserves will continue to grow.

Build on Successful Policies that Have Helped Lead the Housing Recovery

·         The President’s housing policies have helped the housing recovery continue to strengthen. Helped by the Administration’s programs, the housing market is turning around. Homebuilding has more than doubled since crisis lows, spurring job growth in construction and other housing-related sectors. Meanwhile, strengthening home prices have brought millions of families out from being underwater and put hundreds of billions of dollars in wealth back in the pockets of America’s middle class.

o   Year over year home prices have risen for 32 straight months, and are up nearly 30 percent since crisis lows. Rising prices have brought nearly 10 million families out from being underwater since the beginning of 2012, cutting the number of homeowners who are underwater—with homes worth less than their mortgages—by nearly 80 percent.

o   Housing wealth is growing again, with owners’ equity up more than $4 trillion since hitting a low at the beginning of 2009.

o   Homebuilding continues to come back, leading to an upswing in construction jobs. The annual rate of housing starts has recently been more than double its April 2009 low of 478,000, while the number of residential construction jobs continues to rebound.

o   Existing single-family home sales have increased as much as 50 percent from their crisis low and are close to historical norms of about 5.0 million units.

o   The number of mortgages more than 90 days delinquent has decreased by more than 50 percent to under 2 million loans, the lowest level since 2008.

·         The recovery has been driven by Administration actions to stabilize and heal our housing market. Within a month of taking office, the President launched a series of housing initiatives to help millions of homeowners stay in their homes or transition into sustainable housing opportunities. This relief was provided through a combination of direct assistance and through setting important industry standards and templates that transformed the way the industry responded to the crisis. Among other important actions, the Administration:

o   Launched mortgage modification initiatives that have led to more than 8 million homeowners getting government or private sector relief– twice as many as those who went through foreclosure during the last six years. The Home Affordable Modification Program (HAMP) has helped over 1.4 million borrowers through permanent loan modifications.  Combined with 2.5 million Federal Housing Administration (FHA) homeowner interventions and the 4.2 million helped through private lender programs largely modeled after the HAMP template, more than 8 million homeowners have been helped.

o   Worked with regulators to create refinancing opportunities for millions of underwater borrowers through the Home Affordable Refinancing Program (HARP), with more than 3.2 million families helped through September 2014, and helped additional borrowers refinance underwater mortgages through FHA’s Short Refinance Program.

o   Established the Hardest Hit Fund (HHF) and committed $7.6 billion in resources to states to develop locally-tailored programs that reduce blight and assist struggling homeowners in their communities, helping over 200,000 borrowers with programs that reduce principal or help them bridge unemployment.

o   Allocated $7 billion through HUD’s Neighborhood Stabilization Program (NSP) to address foreclosed and abandoned homes in thousands of neighborhoods.  NSP is projected to support close to 90,000 jobs and treat over 100,000 properties – including those with affordable rental and homeownership units – creating a positive ripple effect throughout communities. 

o   Negotiated the National Mortgage Servicing Settlement with 49 state Attorneys General to hold banks accountable and assist struggling homeowners. The Settlement has provided over 600,000 homeowners more than $50 billion in committed relief.

o   In FY 2014, the Department of Justice filed more than 150 mortgage fraud cases, and obtained convictions of more than 600 defendants. The Department's mortgage fraud efforts in that same period also resulted in recoveries of more than $3 billion.

o   Other key efforts included launching an Office of Housing Counseling at HUD that has assisted more than 9 million families, and rehousing or providing assistance to remain housed to 1.3 million homeless or at-risk Americans – including veterans – through the Homeless Prevention and Rapid Rehousing Program (HPRP). In the last four years, veteran homelessness is down 33 percent nationwide, and unsheltered veteran homelessness has been reduced by 43 percent.

·         Continue to cut red tape so responsible families can get a mortgage. While progress has been made, there are still millions of families with strong enough credit profiles to qualify for a mortgage but who are nonetheless being denied loans by lenders. The Administration will not tolerate a return to shoddy underwriting or unsustainable mortgage lending, but believes there are too many middle-class families with good credit by historical standards who remain shut out in today’s tight market and deserve a chance to buy their own home. HUD and independent agencies like the Federal Housing Finance Agency (FHFA) are working with stakeholders to clarify put-back and indemnification policies and enhance lender understanding of these policies to encourage originators to extend lending to all creditworthy families.

·         Lay the foundation of a stronger housing finance system for middle class families and economic stability. The President believes it is time to turn the page on the flaws of the past and build a new sustainable housing finance system that will provide a path to secure homeownership for responsible middle class families. The President continues to support long-term reform centered on several core principles: require more private capital in the system; end the failed Fannie/Freddie duopoly business model in order to improve system stability and better protect taxpayers; ensure broad access for all creditworthy families to sustainable products like the 30-year fixed rate mortgage in good times and bad; and help ensure sustainable rental options are widely available. As in the past, the President stands ready to work with members of Congress in both parties to enact commonsense housing finance legislation based on these core principles.

·         Strengthen access to affordable rental housing. The President has consistently supported policies to expand access to affordable rental housing for families who are not ready for, or who do not want to own their own home. Important efforts have included pushing for greater funding for affordable housing such as through programs like the Housing Trust and Capital Magnet Funds, protecting the affordable rental housing market during the economic crisis through HUD’s Tax Credit Assistance Program and Treasury’s Credit Exchange Program, and the launch of a Treasury program that partnered with state and local housing finance agencies to enable the development and rehabilitation of 40,000 affordable rental units. Recently, HUD and Treasury successfully rolled-out another partnership to help state and local housing agencies finance affordable rental housing at significantly lower interest rates, starting with the rebuilding of a 1,100 apartment complex after Superstorm Sandy in Queens, NY. More broadly, the Administration will continue its push for expanding support for affordable rental housing, and reducing barriers to housing development that increase housing costs and prevent working families from accessing jobs.